Korea Business Confidence

Korea: Business confidence falls to seven-month low in July

June 30, 2014

The forward-looking business confidence indicator (BSI) published by the Bank of Korea fell from 81 points in June to 78 points in July. July’s result marked the second consecutive fall in confidence and the lowest level since December 2013. The indicator is still hovering below the 100-point threshold that separates pessimistic from optimistic territory.

According to the Bank, business prospects deteriorated markedly in both domestic-oriented manufacturing firms and in export-oriented businesses. Firms’ sales expectations also worsened over the previous month, which meant that companies’ views on their future profitability deteriorated compared to the previous month.

According to the BSI’s current business conditions index, business confidence in the manufacturing sector fell from 79 points in May to 77 points in June.

According to private sector analysts, South Korean businesses’ deterioration in confidence has somewhat been a reaction to the Sewol-ho ferry disaster that took place on 16 April. July’s monthly drop in business sentiment continues to highlight concerns that consumer spending may weaken in the coming months and that the strengthening of the Korean won versus the U.S. dollar is likely to dampen export-oriented firms’ profitability.

FocusEconomics Consensus Forecast panelists expect fixed investment to expand 3.9% in 2014, which is up 0.2 percentage points from last month’s forecast. In 2015, the panel expects growth in fixed investment to moderate to 3.7%.

Author:Ricardo Aceves, Senior Economist

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Industrial production in the mining, manufacturing, gas and electricity sectors decreased 6.0% in December compared to the same month last year, more than the revised 1.7% decrease in November (previously reported: -1.6% year-on-year).